Question

What are shareholders, and what is the difference between the preferred and common stock they buy? What type of business entity issues these types of stocks?

A) Shareholders are company owners; preferred stock has voting rights, common stock doesn't; corporations issue these stocks.
B) Shareholders are employees; common stockholders have more rights; partnerships issue these stocks.
C) Shareholders are investors; preferred stockholders receive dividends first; sole proprietorships issue these stocks.
D) Shareholders are suppliers; common stockholders have equal rights; nonprofit organizations issue these stocks.

Answer 1

Shareholders are investors who purchase shares of a firm, becoming partial owners. Preferred stockholders get dividends before common stockholders but often lack voting rights, whereas common stockholders can vote on corporate matters. Corporations issue these types of stocks.

Step-by-step explanation:

Shareholders are individuals or entities that purchase stock and thus become the owners of a portion of the firm. When a firm sells stock to the public, it is known as a public company. Stock is divided into shares, and no single person usually holds a majority in large firms, meaning ownership is spread across a broad number of shareholders.

Preferred stock and common stock are two types of shares that shareholders can purchase. Owners of preferred stock usually have priority when it comes to dividends and are paid before common stockholders but typically do not have voting rights. On the other hand, common stockholders may have voting rights and can vote for the board of directors that manage the company's operations, though this depends on the more shares they own, the more voting power they possess. The correct answer to the question is C) Shareholders are investors; preferred stockholders receive dividends first; corporations issue these stocks.